EP14 - Behind Enemy Lines - Dealing with the Buy-Side on an ESOP Transaction

On this episode, we dig into a better understanding of the buy side team for an ESOP transaction. This would include the Trustee, Evaluation Firm, and their legal counsel.  As you invite them into the ESOP deal, they are in a sense the enemy and there are certain aspects of working with them in this process that are important to understand so that you can be better prepared for your transaction and your journey to an ESOP.

Transcript

[0:09] Welcome to journey to an ESOP and Beyond podcast esops esops esops Employee Stock ownership plans. This is what we're talking about and this is a resource that we have produced for your. Listening pleasure and also because there's multiple ways people are using Employee Stock ownership plans and we want we want to help kind of carve into something that, hopefully makes some sense and you might have heard about esops already um from other venues and this is just another resource to think about those and, you might have gone to some conferences and um and so if you're new to the podcast I wanted to say welcome and thank you for for joining today.

[0:51] What we're doing here is we're working towards whether you're an existing ESOP already or we are you're thinking about becoming an employee stock ownership plan for your company we're working through topics that we're hopefully helpful to really better understand um the process of of esops and how they actually apply the the main thing I see in the marketplace is there's um of course this helps to provide.

[1:19] An an exit plan right so it's it's going to help to exit planning it's going to help um facilitate succession planning it's going to help um also with the plan for growth in the company and a lot of times just instead of doing a full-on exit what you see what you will see is more of an approach to to use the ESOP as a tool. To accomplish those things and even maybe as we as we. Think about getting chips off the table meaning that we want to go ahead and start um not doing everything all the the the same time or at Once In some cases this really facilitates in some cases a uh 1 of the shareholders getting ready to leave and we can facilitate that type of structure um or um as they do that we can we start transitioning new people into certain roles and facilitate succession planning so esops are um not just singularly just to get somebody to sell your company and get out of there it's not for just that right that can be something that we hope to accomplish. Now today as we as we think about all of those things um I wanted to start off this podcast with this because I do think this is interesting right now and 1 of the things I do in podcasting is I kind of just take from what I'm working on literally right now and so let me start with this and I'll explain that a bit.

[2:37] Oh absolutelyoh absolutely. Thank youand you're interested in leaving the Navyto be a fighter pilot, between kind of walking and beating and everyone know 1 kehrs about. You should be glad you're not in a fight Lieutenant because uh with your attitude you wouldn't last long.

[3:07] All right how many people know what this is all about this is Behind Enemy Lines. And honestly 1 of this is this is 1 of the Owen Wilson films that. I really liked and I like him as an actor but anyway this was 1 of those and also we're we're we're thinking about Gene Hackman this year and I and I really wanted to do a Gene Hackman movie um he's of course the um. In charge of the of the Navy Air Command and their the Navy vessel that, uh they send out Owen Wilson on this Mission and he's not supposed to but he goes and takes some pictures he gets he gets stuck Man Behind Enemy Lines and so how does this apply to esops as we go so the topic today is when you're Behind Enemy Lines how are you dealing with the trustee and the valuation firm and the folks that you're going to negotiate your ESOP transaction with the value of of the topic is really to better understand the processes that go into it, the roles and um procedures that happen with an ESOP transaction so that you're better prepared and equipped to manage through that.

[4:20] Process and it's actually. You know as we think about it it's kind of a a dynamic part of doing an ESOP but you're really getting it we're going to get into the idea that this is a what I refer to so often of the time is a regulated m&a transaction so that's what we're going to talk about today, and I think this is a perfect uh movie to use as we dig into that type of topic now, as you as I started off with a a relatively long intro I wanted to kind of finish that intro with hey check out our website at journey to an ESOP camand you'll find out all the podcast episodes we have you can connect with us there if you would like, if you think that you know somebody that's thinking about an employee stock ownership plan and they and they don't have a better a better resource you know send them this because this is this is good stuff so thank you again for for joining.

[5:10] Now I want to set this up correctly so when I when I start thinking about like what I was I was referring to like in the middle of, multiple esap negotiations with multiple trustees and and and the trustee position as we talk about it um I wanted to find some terms as we get going the trustee position is, there to there being hired by the company paid by the company and essentially becoming the company's um independent buyer. Who is looking to provide a negotiated fair market valueand and provide that negotiation under the, processes that are approved by the Department of Labor which is basically the Department of Labor process agreements, now those individuals are going to be in 2 categories they're going to be the individual independent trustees or an Institutional trustee that's operating on behalf of a of a of a company behind them and so there's there's really 2 approaches there in terms of when we talk about the I'm going to refer them, refer to them as the enemy, in a way that just is kind of fun because that's what we're talking about Behind Enemy Lines and and the part of this is that they're going to be behind your and you're going to be Behind Enemy Lines in a sense of.

[6:30] You know you're you're providing information you're walking through all of this with with these guys in your and we're really thinking about how we're actually positioning the company, from the time that we start the process of hiring them to the time we actually closed until such time as they become potentially the ongoing trustee which is the other, element here that becomes they are the enemy then now then they become your um your ally right after the fact so where you were using those kind of military terms as we get into it.

[7:01] Now the other so definitionally we've got a trustee as we're thinking about it now that trustee under the process agreements is going to be armed with their own um buy-side team right and they're going to um have on their side a independent valuation firm. And they're also going to have a an attorney typically a legal counsel an orisa attorney that's representing them and the transaction and that's and that's going to be the buy side team now the sales side team is going to be. Um organizations like what we do as sales site advisors along with of course the client the shareholders possibly some key managers, um and in a in an ESOP attorney as well and so keep all that in mind as we're as we're thinking about um the this idea of like.

[7:48] The enemy coming into you know our shop and thinking through how that's all going to play out and and the purposes of all this right so when we start thinking about the idea of where we're what we're trying to land with is is an ESOP is a retirement plan. And a retirement plan that benefits your employees with the stock and play stock ownership right with the stock of the company at whatever percentage you end up selling as a stock sale so whatever we end up selling is a stock sale goes into a a trust if you're not an ESOP yet an an employee stock ownership trust gets created in the process of closingthat trust is going to hold the stock on behalf of the employees. And is going to give them the benefit of that stock over a period of time so that's what's happening now we know that what we just said is is as a retirement plan.

[8:43] It's important to note that under the retirement plan law erisa that's really important that we operate with a. A strong understanding of fiduciary responsibility meaning thatour government in their. Creating you know creating a legislation around retirement plans in order to protect employees, whether this is a 401k or an ESOP right in order to protect employees it's really important. That they're protected under like the fiduciary um a fiduciary that has the the. The role um to make sure that they've protected the interests of the employees in this whole situation so that's. That's really what why they why this is such a a formal a formal regulated process and the m&a process itself is like is of course. To duplicate what happens in the marketplace but what's what's happening around that in addition to be you know just an m&a process meaning that and in addition to just selling the company negotiating the stock value is we have to make sure we're operating within the protocol and the processes of the Department of Labor so that's really just a foundational understanding of, of going into who these people are.

[10:02] Um let me stop and go right into kind of like the process itself of when do they come into the equation at least from my perspectivemany different for the deals but um.

[10:14] I I let me just say this about like sometimes when you when you see deals done where, the cell site advisor brings people in right away or somehow they don't even have a cell site advisor um or they have something like a cell site advisor and they're just bringing in trustees right awayum the first thing is is. I don't I don't like to do any of that in in our deals because I want to make surethat the company now now in that situation when I say the company I do mean not only the the company itself right it was represented by the shareholders but the shareholders that are representing those fundamental positions like CEO president um CFO all the positions possibly that are going to lean in on the decision-making process to do in a play stock ownership plan, the process of of starting that needs to be um.

[11:06] Needs to incorporatesome really good like good planning I hate that like really um. Effective planning around all the different potentially options now that could include uh what percentage of the company we're going to sell are we going to be an S corp or C Corp. Are we going to um use warrants and SARS are we going to have Bank financing not Bank financing so keep that all that in mind now in in addition to that there's scenarios that are going to play out in planning like. Um and is the company going to lead into more of an aggressive forecasts are they going to have more of a a conservative forecast.

[11:42] And the is the company um going to, from a timing perspective when are they going to roll this out when is when is that you know what what part of the year does it make sense, um where are they trying to land as we start thinking about the in mind all of those things are going to be important so there's going to be as a as a dig into those first couple steps are going to be a really important. And I don't want to get too deep into that because this is going to be about you know dealing with the with the people but are the we're going to keep calling them the enemy right so just keep that in mind dealing with the buy side team synonymous with the Enemy. Um in our process they're going to come in. Once we've really planned valuation feasibility of financing and 40449 P all the IRS code sections related to the employee benefit warrants and SARS and make sure that all of those elements have been. Um modeled for the company in in a way in such a way as the company can really understand those things and make a very good decision as to what direction they're going to go with those. Once that's all done. Then I can get wrapped up in summarized in what we would refer to as a deal memo and that deal memo then can be taken and used in the process of bringing on the buy side team.

[12:59] Now I'm going to come back to the idea of be bringing on the buy side team of course is bringing on the enemy right so we we start interviewing these people 1 of the things I would say is definitely you want to interview multiple trustees.

[13:13] I know people that we work with and I know them really well I know kind of really what they're going to do or say or whatever for the most part because we've done a lot of deals together. However the client doesn't know and so as a part of the process they don't really know and it's really important to hire a trustee that is going to.

[13:31] That all of the criteria that you're making in your selection process now. The overlying criteria that you're going to make is going to um provide the the client in this case the shareholders the decision makers, in the company that are that are um bringing the ESOP on that it's going to help them make the decision from a their fiduciary standpoint by doing fiduciary due diligence on each of the trustees. Now that might entail not only an interview it might entail a follow-up interview it might also entail some client references.

[14:07] Some investigation into the practice their insurance that kind of thing just just as important you know because you're hiring um a third party to represent your proposed ESOP. And so some of the things I I'm trying to say here is that it's not just the trustees responsibility when it comes down to it and this is where it becomes a little bit like. Understanding what is your role and responsibility because in an ESOP transaction.

[14:34] We're not just thinking about the shareholder and their interest in an m&a transaction if we were a Southside advisor for just a pure m&a transaction with a strategic buyer, well we may just really like hey we really want to make sure the shareholders are getting everything they can get out of the deal we make we may be concerned a little bit about the company but not in an ESOP transaction an ESOP transaction we want to make sure the shareholder is going to win the company is going to win the employees are going to win and the key people are going to win. And all of that being said because if we do that then we can create a a solid Employee Stock ownership plan that's going to last um.

[15:11] A long as long as it needs to write as long as it needs to whatever that means it could be like we're going to last until the company sells to a strategic it's going to last to get through the debt piece and get and get some of the the growth built so we can go maybe another round so there's there's a lot of those types of things but around that we have as advisors we have to advise our clients to be thinking not only as shareholders but thinking on these other Realms and this is 1 of those that we're thinking about when we're bringing on the uh buy side team. So um interviewing them and then really understanding who they're bringing to the table is is part of the equation now the sell side advisor, can't dictate to the trustee they can figure out like who are hiring make a decision among the interviews but they can't dictate who they're going to use but they could they could basically know and have better a better understanding of who that team is going to be before you go ahead and and get be like I said kind of overdoing this but getting Behind Enemy Lines and that what what's going to come in is basically they're going to um. Investigate the company and by doing that they're going to you're going to kind of open up um obviously a lot of information and you're going to be walking through um the. Expected.

[16:27] Processes of of doing what we would refer to as due diligence in a couplelevels of due diligence which is going to include a site visit which is a physical on-location site visit presentation and. A fulfillment of of data that they're going to want to um. Have and make sureum that they're putting together the right information for the trustee and evaluation firm and the legal firm to review to come up with what they believe is their their value and the process that they're going to go through they're not going to be issuing a valuation report, they're going to be preparing themselves for this negotiation as we get into it.

[17:49] What you're hearing is the landmine scene Behind Enemy Lines andOwen Wilson is running through this 1 area and um, enemy Tire enemy territory and he's being pursued by some other people they're trying to kill him basically because he knows stuff about. The um enemy has got some uh photographs that they want and so he he starts to walk through it but then he's got to run through it and these guys step on the uh.

[18:14] Uh the trip wire and then everything's just blowing up right so the point of that is like walking through a Minefield right is not something you want to be doing and need stop transaction and some of the things that we're going to talk about here are just the areas that as we talked about the trustee and the valuation firm.

[18:32] Areas that we're going to want to be thinking about and preparing for that could be like a Minefield um that you want to make sure that your your um projecting into the process, as you go through the step-by-step process of saying negotiation with the trustee and those types of thingsso 1 of the things about this too and I was just. In 1 of the reasons I was looking at doing this this episode is just coming out of a couple different ESOP negotiations and it just started making me think about like some of the things that that were just working through, um that are important that are important to understand and know and so the first thing is is as we start.

[19:13] Working through the beginning steps of an ESOP and then all through the next parts of the steps of of hiring the buy side team. It's important to know like the the modeling that we're doing around the cash flow of the business. That supports the discounted cash flow evaluation and of course it the cash flow modeling around the bank financing and the seller financing. Um are so important so establishing the forecast in the sense is is really understanding.

[19:45] Um what's actually in that forecast and be able to go through and be prepared to talk through um at the forecast level meaning that that forecasts should be a 5-year projection of Revenue, gross margin Gene expenses internet income and then projecting into potentially any other adjustments that will affect cash flow either positive or negative and then in that also projecting out if there is a capex capital expenditure budget so looking at the forecast itself it's really critical to know that um that part is going to be really evaluated and in some deals, let's just say that there's there's really a.

[20:31] A very nominaltransition between historical cash flow and forecasted cash flow and meaning that it's not there's not a lot of, um you know growth or it's just kind of pretty much the same as it was and that can happen right so that's that's a little bit easier to deal with in that if you've done it already then you're probably going to be able to do it you know in the future. Where we're getting into the forecasting is when the company is really experienced some significant growth. They're in a very high growth stage and we want to make sure that we do our job of um the terminology that people will will use and I'll throw it out here is this like hockey stick forecast if we see that there's like some level of a hockey stick forecast meaning that the historical cash flows are significantly lower than the forecasted cash flows, um then we're going to want to really dig into what is the transition of the or the change and why is that change happening meaningum in.

[21:33] Pure economics why is revenue growing at the rate it's growing and why if the gross margin is improving why is it improving um if we're getting. To that point where we're really able to.

[21:46] Level off on G&A expenses why is that the case so so what is it and why is really important and so when we think about forecasting um as a spectrum of of things from a by by side perspective they're going to want to understand. The the all of the elements of how you get to from here to there the better job you do, of explaining that and then normally that's explainedin the site visit normally that's explained when. You are bringing everybody around the table.

[22:25] And working through the confidential information memorandum and explaining the company overview getting into the details of how this is actually happening.

[22:34] Um so for instance in the event that we do have a a good solid amount of growth. Um is that growth is that growth repeatable is it for the expansion of existing relationships is it. For um a bring up bringing on of a whole new group of customers that we didn't have before. And so the details really do matter um the more you can substantiate. The assumptions in the forecast the more we can put in the negotiations the weight um or the valuation on the discounted cash flow.

[23:08] I'm making a huge assumption there where some people might not really it may not be a big deal for them to you know we're we're okay with with a range of value between this and this. Um where this comes into play is when when the shareholders are really wanting to make sure. Um and they believed fully that this is the valuation is really based on normalized cash flow representative of the Foo future cash flows meaning this year the next year the next 3 years after that so. If that's their posture right then that we need to basically make the argument that that's why that's that's actually happening we didn't have a let me give you some examples of where this can be. Interesting where let's just say 2 years ago the company went through a massive amount of growth. And that growth was due to what in our world is called the coid bump the co bump would be yeah coid came even though it was bad for some companies it was really good for some other companies um and they experience some hyper growth that's not really sustainable.

[24:14] I do not understand why is this about not doable for pickup I am good to goI say it again I'm good to go now or not. 06you are a combat Naval aviator start acting like 1.

[24:36] Take a shot down life is tough I'm very sorrywhen you pull yourself togetheryou do whatever it takes.

[24:44] Create a medical between you and your pursuers.

[24:47] You get training use your hand you faded survive and we will bring you homedo you understand we will bring you home.

[24:57] So here's the deal um as this gets a little more tense. They uh he gets all the way to the extraction point and the politics are terrible on the boat because Gene Hackman cannot bring him in, um they don't want to recognize that he's Behind Enemy Lines because it's bad so this is kind of like, 1 of those like oh man you know the US government's kind of messing around with you know military people that are given serve you know their life to the Cause right so.

[25:28] Hackman's great though he's like just a what a great actor he was so anyway I just as we play that as we get into this idea of what I was talking about with koide. Is we need to be conscious of um all of those aspects of you know. I guess saying what like what needs to be said around the forecast is that there is a an importance to um the details behind how we got there. And of course as we talk about the. The real things that the companies do grow right and they go through growth spurts and they're and it's solid growth and what we don't want to do is we don't want to just discount that be like all right we'll just do what you did last year you do want to have some level of of representation here for for the forecasted cash flow 1 of the ways that the as we get into the negotiations is that the buyer the trustee and evaluation form are going to look at representative of of. Current cash flow against the actual uh against the if we call it the budget the budget of the of the revenue for that year so uh that they would look at things like 12 trailing months cash flow to determine hey are we on track to hit those targets.

[26:40] Um because if we so if we assumed um let's just say hypothetically a 20% growth rate for the year in this particular calendar year. And we're right at the middle or getting closer to the middle of the year if we assume that and the company is um. There's only a couple different things that can happen either they're on track to hit that they're way ahead of that or the way or that or they behind that or way behind that right so. In the event that they're that they're um on track or ahead no no worries right we can even update the valuation or update the forecast say we're going to we're going to, crush this number but if they're behind now it has to happen in in the scheme of things is there needs to be. What will happen is the TTM may show um that we're off track, there needs to be an explanation as to why maybe that that maybe there was some timing delays and some orders maybe there were some things that just they thought they were going to come through they didn't um. In some cases what I would call for is like Hey we're going to have a meeting with the trustee and the valuation firmtalk to the CFO talk to the company um get everybody on the on the the phone or in some type of virtual meeting and just get into the details.

[27:53] If we don't do that then you will lose the um the ability for the the valuation to shift more towards the forecasted cash flow. And maybe in a negotiation a difficult negotiation with the with the trusteeso in that call we're going to be talking about things like um.

[28:13] The what's what's the year look like the rest of the year do does this change if it does change the future years after that. Because sometimes growth in the 26 say as we get Beyond 2025 growth in those periods can be predicated upon growth in these years. Um what's really influencing those things so we'll we'll dig into that sometimes it's it's. You know when we started talking about the the factors there there could be changing in pricing there could be changes in. Uh supply chain that could be changes in costs and lead in in terms of uh labor the labor rates and then things like that. Um 1 of the things that I see really that are are supportive of of the growth is. Um and and sustainable growth right is is the company is. In a market that is expanding and so as we focus in on a lot of those factors we know that there's more and more opportunities in that market so if that's the case um the other part of that is is how is the company going to Market, and so explaining from a leadership perspective and from a process perspective how are they going to Market how are they going to Market in the past how are they going to Market successfully in the future um in the event that there's a lot of dependency on uh a company getting more revenue from new opportunities that they don't have right now.

[29:39] Which is a little more a little more difficult right um so we're going to dig into. Some of the things around that we're going to want to dig into the business model and really dig into like how they actually operate um from.

[29:52] From all the different processes in the in the reports that they use so if they're using a pipeline report if they're using some type of CRM data how is that all playing out so we're spending a lot of time here because revenue is the beginning step of like, solidifying the forecast in the minds of the trustee and evaluation firm. Uh the composition of Revenue can be a tricky thing too if we have a concentration issue that might be a tricky issue that we have to kind of figure out, um if we have a lot of of. Uh diversity and revenue where we have a lot of different varieties of types of of sectors or service lines that we offer as a as a company from a revenue Source what are what are the ones that are more profitable what is the. Marketing strategy around that what is the business development plan around that. What are the actual recent opportunities some things that can happen too is understanding obviously the market trends, but also understanding the legislative Trends you know as opposed to um just pure Market issues so legislative issues obviously right now are things like tariffs and how how do tariffs. Impact what we're actually predicting in the future.

[31:08] And everything that it everything matters because sometimes I've seen tariffs be like Yep this is a good thing for us and this is why or tariffs are a bad thing and this is why, and or or this is how we're overcoming the tariffs because they're they're coming in at you know maybe increasing the cost profile of things and so so whatever the those particular issues are they need to be they need to be addressed as you go through this process of of communication, 1 of the things about um the process of negotiation that, we're talking about like the idea of of dealing with the trustee and evaluation firm you're inviting them into your company you're going through all this information um they're doing due diligence they're working through a data room of documents and, as they go back to analyze and do their own models um and negotiation when negotiation does start.

[31:59] It's really important to be umMindful and.

[32:06] Pro in the process of doing this asking open-ended questionsthroughout the process so like even in the site visit how are you guys seeing working capital what do you guys coming up with on on working capital so what 1 of the things about the process of negotiating an ESOP transaction is what's customary is the sell side is is customarily the 1 that issues the initial offer to the to the buy side so the so the sell side creates a term sheet that term sheet should be reviewed and worked through by the um Southside advisor with the ESOP attorney um and then with of course the shareholder and any of the decision makers at the at the uh companies level.

[32:50] So they approve it now the the initial offer is always gonna it should be always uh a high offer it should be um an offer on purchase price that's higher than what has been modeled it should be, more aggressive towards the say the warrant and the SARS it should be more aggressive towards interest rates all of those things because that's your beginning offer. It is customary and appropriate for the trustee and again we're keeping them back in that Behind Enemy Lines where the enemy coming in with a really low offer, um let's just call it a disgustingly low offer right like they're just going to be um insultive you know to us as that what is this you know offer we don't even we wouldn't even consider this at all right it's it's and that's okay because that's what they have to do they have to show that. That their offer is not um according to the Department of Labor is basically something that they've negotiated so they're going to start low we're going to start high. So 1 of the things I wanted to talk about here is just how important it is for that first off that process to be quarterbacked by the sales side advisor.

[33:57] Um they need to be a little pushy in that sense hey where do we where do we get in your counter back what's happening they need to be pushing the process along so that there's not a undue delay related to getting that term sheet process wrapped up. There are there are some questions you should ask when you do interview the the trustee as we started at the beginning um and 1 of those is like what's your normal process of of. Of offer counter offer for calling at that but what we call a turn on the on the on the negotiation so how many turns would you possibly have and what does that look like for you as to trustee what are you actually doing and so.

[34:39] Uh keep in mind what they're doing is they're showing the Department of Labor that there's been a true negotiation a true back and forth, and so they're they're documenting that to provide the evidence that there was a true negotiation um and knowing that there are process could take 5 turns 6 turns more than that sometimes is helpful because it helps you to understand thatyour what how does your timeline look in that how quickly can you move to that process that can feel a little. Honestly a little wonky because it's like what are we doing here um.

[35:14] Keep in mind that as you as you do that there might be questions and and the other part of that is communicating through those types of things so how does communication work.

[35:24] AndI'm asking myself a question and answer it because I I think it's an important question along this how does communication work with the with the buy side team.

[35:32] And the cell site team so. Is it appropriate to just say hey we have an issue with this can we all get on the phone can we talk through it absolutely and if you're not doing that. Um and and you're just assuming all of the records of the of the. Negotiation are going to just be of course they're going to be documented on the term sheet but you have to talk through things that come up like for instance yeah we're really not seeing you know the forecast, being a uh as as solid as we as you guys had presented it and this is why we're thinking that well let's talk about why you're looking at that and then and it's appropriate to get everybody on the phone and be like look let's let's get into this because that would be um a mistake to let them like just have like whatever well we just think it's this and nobody kind of deal with that right especially as we start as we start thinking about what's what's important in the deal so.

[36:30] If we've modeled out a certain level of valuation and we've we've prepared that the bank's good with it everybody else is good with it we need to make sure that that's been discussed. Now the other things that happen as we get into the um we're getting close to like finalizing negotiation and we're going to like all right well let's start wrapping up the deal into closing, and and as we go through that next step in the process what we're trying to do is make sure that we've identified all of the potential. Um risk factors. That may that should have been disclosed right but may or may not have been yet disclosed as we start thinking about documentation so where this comes in is is a start disclosing around the indemnification. Um and that's going to be part of the of the negotiation and the term sheet related to the basket and related to, the uh the limits on the indemnification so what I mean by all that is that they're in the term sheet the sell side is going to take some um risk of. Anything that could come in the future um that was. Either not disclose of course it needs to be disclosed or it was something that that came up later um that they didn't know about that could affect, um from a material standpoint the valuation itselfon the trustee side on the buy side.

[37:49] What they're looking at is to make sure that they bought the company the weather in part or in whole at the right value and then there wasn't any surprises to that so that's within indemnification does now there are specific things that could be um. Indemnified in the normal uh language of the term sheet, and there are other things like for instance that the company is in a current lawsuit that the trustee could say no we're not going to keep this as part of our our basket this is going to be something completely separated in the event that that lawsuit turns out to be a claim we're going to carve that out in the closing documents and we're you're going to be completely responsible for every dollar of that claim against the purchase price so this is where it's really important to ask those questions and be us and be and be very very uh.

[38:44] Transparent about anything and everything that's going on in the company whether that you feel like that's a small potato or a very very big potato right it's only something we want to make sure we're really fully disclosing and understand in the interview process with the trustee right so going all the way back to that step that you have asked those types of questions um so that the trustee can tell you hey based on what you're telling me in the deal memo of it's a lawsuit this is how we're going to deal with that. We don't have any room for anything else other than this is the way we were going to deal with that that may or not may or may not be acceptable in the net net terms of the deal as we start to kind of pull it all together and move into the closing.

[39:28] So assuming all that the other thing that's going to happen in the closing process is of course. The uh process of of finalizing all the due diligence happens all the way up into the end and that happens with the the valuation firm initiating. Um some Q&A around anything that has changed since the time of the site visit so that's that's referred to as the bring down call or the take down call and that's really there to just do a final check and balance on hey this is all good at that point um everything gets kind of it's all ready to sign a fairness opinion is issued and all the documents get signed and once that's all done everybody's been paid now um we move the what I'm going to call the enemy over to the other side and they become your Ally and the way they become your ally is now that they've done the deal the trustee becomes your ongoing trustee the valuation firm likely becomes your ongoing valuation firm for all the future updates going forward, and that's really kind of how that all works but it's important to understand what it's like to um be on that side of things during the transaction and being mindful of.

[40:36] Where what you have to be um aware of throughout the entire process in terms of going all the way up to the closing um closing table. So thanks so much for listening today I appreciate it check us our check out our website at journey to an ESOP do Cam and we'll look at um our future topics and everything else that we have coming and um appreciate you listening today, and we'll see you on this next step on our journey to an ESOP.